[Article] Social enterprise : a direction to follow for addressing sustainability challenges

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By Morgan Donnette

 

For our first article in English, we wondered about whether social enterprise can be the solution to address the sustainability challenges. Did this relatively new type of enterprise can help us to solve the environmental and social problems of our time?

 

I – The inadequacy of the social enterprise to address sustainability challenges

A – The limits of the creation of a social enterprise risk and profit: “For love or money.”

B – The necessity of different types of enterprise to address sustainability challenges

II – The role that the social enterprise has to play in sustainability challenges

A – The establishment of social enterprise in every area of sustainability

1 –Social enterprise and the environment

2 – How social enterprise can help people

B – the necessity of legal adaptation to facilitate the creation of social enterprise

III – Conclusion

 

 

August 25, 2016, a group of scientists published an article where they explained the discovery of an exoplanet around Alpha Centauri, which is the closest star system to the Solar System. These scientists described in this article that it could be a “terrestrial planet”; this means a planet where the temperature is similar to planet “Earth”. (Anglada-Escudé et al., 2009). Named Proxima Centauri b, this is the closest potentially habitable planet. Can we see in this planet a hope for humanity? This planet is located about 4.2 light-years away (25 trillion miles). This suggests that we will never set foot on this planet. Although, science is progressing exponentially, it is unlikely that it will not enable us to travel and escape from our obligations to preserve our own planet and its people.

 

The first consideration for our planet would be to stop to exploiting it as if its resources were unlimited. However, the limit of resources is not the only problem for our society; we live in a world where making money has become the first objective in our society. It could be said that enterprises (not all but a significant number) have become more and more selfish. It appears that making money has become a priority: before employee’s well-being, before the local population and before the environment. Reasons why the companies start to be criticised is because of how they seem to interact with sustainability issues.

 

However, what does sustainability mean for an enterprise? According to the “business strategy for sustainable development leadership and accountability for the 90s” (International Institute for sustainable Development, 1992) sustainable development for a business enterprise is defined as “adopting business strategies and activities that meet the needs of the enterprise and its stakeholders today while protecting, sustaining and enhancing the human and natural resources that will be needed in the future.” If we had to describe what sustainability means in a few words, it would be the protection of the planet and its people.

 

To solve the sustainability issues, a new type of business model has appeared, known as “social enterprise”. However, there is no agreed upon definition. Mandiberg states that “a good working definition is that social enterprises are organizations whose core objectives are social or environmental, and use the market to achieve those objectives. Social enterprise are often businesses that a mission-based organization operates to generate a needed resource” (Mandiberg, 2016). For Frances, “social enterprise has been applied to a range of innovative practices and philosophies within the business, welfare and not-for-profit sectors.” (Frances, 2008, p152, l4-7). They are also other definitions for example the UK government has also created a definition which summarises the major points of previous definitions (DTI, 2002). While there is no agreed upon definition of social enterprise, there are some common elements which seem to emerge from all these definitions that these companies are not for profit, social and environmental. By these definitions, it appears now that the goal for a social enterprise is to address sustainability challenges. However, could social enterprise be the panacea for addressing sustainability challenges?

 

To answer this question, it would be preferable to take a two-step approach. We have to look at the inadequacy of social enterprise to address sustainability challenges in order to evaluate the role that social enterprise has to play in sustainability challenges.

I – The inadequacy of the social enterprise to address sustainability challenges

 

It is questionable whether social enterprise can solve all the sustainability problems. There are multiple reasons: the first one is that when you create a social enterprise, if the company is owned by the people who have created it, they take a risk, and there may not be a financial return on investment. However, to avoid this problem, different types of enterprise exist which can help to solve the sustainability challenge although this may not correspond to the definition of social enterprise.

 

A – The limits of the creation of a social enterprise risk and profit: “For love or money.”

 

When Frances first wrote the book “the end of charity: Time for social enterprise“, (Frances, 2008, p167) he was thinking to call it “For love or money“. He explains this first choice by explaining that when there is a monetary investment in social enterprise all the profit that could make your enterprise would be reinvested in your enterprise. And the benefits of your enterprise would not be pecuniary. The investment that represents a social enterprise could be huge at the start for the founder and the return on investment will only be social. That is what we call “social return on investment” this is the way to scale the social impact of the social enterprise. You can get it by calculating, for example, the number of new employment in the geographic zone of the social enterprise, the quantity of carbon emission avoids because of your enterprise…

 

However, a big problem is social return on investment – for many people – is not enough. With this company “Cool Nrg” Nic Frances explain that he could have done millions, but he makes the choice of creating a social enterprise (Frances, 2008, p151 & 167). We must acknowledge that all people are not ready for that. And if the choice were binary, social enterprise or traditional for-profit business, it would be much harder to addressing sustainability challenges. That is the reason why it is necessary not to have only the social enterprise which tries to solve the sustainability issues, but also different type of enterprise, which for example make profits but also have as primary objective to resolve some sustainability problems.

 

B – The necessity of different types of enterprise to address sustainability challenges

 

Human nature can appear as selfish; most of the wars has for primary resources. Not always as a necessity, but for being richer or just for the power. Money is for us a synonym of wealth and opportunity. Can we in our society governed by capitalism, convince every CEO, every shareholder, to give up the the profit motive for the benefit of the social? It seems impossible to convince the big majority of the entrepreneurs to create or transform to social enterprise. Alone, social enterprises, although more and more numerous, cannot address all sustainability challenges.

 

The necessity of making money is too important in our society, however some intermediary solutions exists. It is not, aut omnia, aut nihil, on the one hand, the evil capitalistic enterprise and on the other hand the social enterprise. The Social enterprises are not alone; Kim Alter developed a schema for the different organisation which does not fit to the definition of social enterprise. She makes six different categories (Alter, 2010):

 

  • Traditional for-profit businesses
  • Traditional corporations: They practice some form of corporate responsibility
  • Socially responsible corporations where meeting social or environmental goals are at the heart of the organisation, but the profit maximisation is still a primary goal
  • Social enterprise
  • Non-profit organisation that have some earned income: They earn some income like selling books.
  • And traditional non-profit organisation: Highly dependent on contract and philanthropic funding.”

 

With this schema, we can see different type of enterprise found an equilibrium between addressing sustainability challenges and making profits. Although there is a multitude type of enterprise which can address the sustainability challenge, the social enterprise can make the difference in carrying out this task, one which is vital for humanity.

II – The role that the social enterprise has to play in sustainability challenges

To get a good understanding of the role that the social enterprises has to play in the sustainability challenges, we have to proceed in two steep. On the one hand, we have the establishment of the social enterprise in every area of the sustainability and on the other hand, to make this possible we need a legal adaptation to facilitate the creation of the social enterprises.

 

A – The establishment of social enterprise in every area of sustainability

 

When we speak about sustainability, the first idea that most of the people have in mind is “environment”, if it is true that the environment protection is a big part of the sustainability challenges, it is not the only part. According to John Elkington (Elkington, 1994), to create the best value in an enterprise, three elements are necessary, the “Triple Bottom Line” profit, peoples and planet. Of these “Three pillars of sustainability”, most social enterprises chose to specialise or a goal to act for the environment whether to help people. However, we will see that sometimes, both can be together.

 

1 –Social enterprise and the environment

 

It is the first idea that we have in mind when the word sustainability appears: environment. The environment seems to be one of the most common objectives for social enterprise. In the history, although the term “social enterprise” did not yet exist, there was a multiple examples of social enterprises which already work for the environment. For example, “Goodwill Industries” was created in 1902 in Boston and have to goal to collect used items, repair those that need it, and then, sell it again in one of their stores or now online. (McCrehan, 2014). By repairing objects, Goodwill Industries play a significant role in helping the environment. What would happen if all companies acted as Goodwill Industries? This question is more important today due to an element that did not exist at the time of the creation of Goodwill Industries the “Planned Obsolescence”. “Planned Obsolescence is the production of goods with uneconomically short useful lives so that customers will have to make repeat purchases” (Bulow, 1986). The main consequence of planned obsolescence, post hoc ergo propter hoc, is that people use to throw in a trash an object without even trying to repair it. The role of these companies like Goodwill Industries is now bigger than before.

 

This is of course only a few examples of the different social enterprise which act for the environment; we could have talked about Cool nrg the social enterprise created by Nic Frances which contribute to limit the carbon emission (Frances, 2008, p151) or a lot of other social enterprises. The conclusion of this is social enterprise have an important role to play in the environment field.

 

2 – How social enterprise can help people

 

Whether it is hiring people in need, fighting poverty, saving others from lack of water, act to the respect of the human right or helping people with medicals disorder, the social enterprises plays a prominent role in these fields. Social enterprise can “create shared value” (Porter and Kramer, 2011). According to Porter and Kramer a share value involves creating economic value in a way that also creates value for society by addressing its needs and challenges. Businesses must reconnect company success with social progress. This definition can perfectly describe the role of a social enterprise in the social fields, creating an economic value, which is in the case of a social enterprise reinvested in the enterprise, to make a social progress. In the field of mental disorder, for example, the social enterprise is often used. The first social cooperative was created in 1973 in Trieste (Leff and Warner, 2006), the goal of this social enterprise is to help people with addiction and mental illness. Here, we speak about social cooperative, because, we cannot speak of social enterprise before the 80s “when some elite business school began to have some interest in social enterprise”. The fist article about social enterprise was published in 1983 (Skloot, 1983). In this area, there are many other social enterprises; we can speak about “Minnesota Diversified Industries”, which employs people with various disabilities. The social enterprise in not an occidental monopoly, for example, in Japan “Coco Farm” which is a social enterprise, a winery, which supports a non-profit residential school for adults with developmental disabilities (Mandiberg, 2016). We can see in this last example a way forward because they have to use a complexes mechanism to make social enterprise fit in the existing legal structure. As we will see in the next section, a legal adaptation seems necessary to make the creation of social enterprise easier.

 

It needs to be clear; we had just seen the social and environment part like both different types of social enterprise, however it is important to say that it is not necessary binary, some social enterprise act in these two fields they can easily work in symbiosis.

 

The last question would be what the real advantage of a social enterprise is compared to the other types of enterprises in these two fields? The main answer seems to be that a social enterprise works with the stakeholder, and because they re-inject the benefits, the willing of making profits is absent, so they can concentrate all their effort on the benefits of the environment, the local population, the patients. Without the pressure of the shareholders who always want to make more profit, to give a better value of their initial investment. However, as we say presciently, to increase the number of social enterprises to solve the sustainability issues, a legal adaptation seems necessary.

 

B – the necessity of legal adaptation to facilitate the creation of social enterprise

 

The main problem at the creation of a social enterprise is the same in every country: The social enterprise does not fit in the existing legal structure (Mandiberg, 2016). Let’s take for instance the France example; there is a multiple of legal structure SARL, EURL, SA, SAS… But none of these legal structures fit to a social enterprise. We can make the same observation for the different tax regulation. The legislator did not imagine an enterprise where all the benefits are reinvesting in the society. Social enterprise does not fit; the current legislation is not appropriate.

 

All this legal incompatibility, obliges the social enterprises to make some complex system by using existing legal structure who lead the creation but also the life of these enterprises more difficult. In fact, this problem is international because of the actual thinking pattern, which is still very closely related to the capitalist system, which make the profit the first goal of an enterprise. In this pattern, the creation of a not-for-profit enterprise is inconceivable. Consequently, it seems necessary to proceed to a legal adjustment to create a new legal form of enterprise and new taxation which will fit for the social enterprise. Another legal adaptation would be to create some government incentive, like some financial help to a creation of a social enterprise to incite to the creation of social enterprise; this solution could avoid the problem that we have previously speak about of the starting investment.

III –Conclusion:

 

Addressing sustainability challenges is difficult. It cannot be the panacea of social enterprise only. It also needs to be the panacea of the government and the enterprises working in collaboration and be a collective work of every type of enterprise which can act for the sustainability in their own different fields. In fine, this seems to be the only way to have a total remediation of these problems.

 

However, social enterprise can have a role to play, especially due to it particular working system, we can here highlight the facilities and liberties for social enterprises to act due to the absence of shareholders. So social enterprise can be particularly effective, especially if we increase their number. The is the reasons why the legal adaptation seems to be the next step to facilitate the creation of social enterprise and create some legal incentive, could be a real benefit to increasing the number of social enterprises which will lead to a start in the resolution of the sustainability challenges.

 

By Morgan Donnette, editor and Co-founder of Counselution

 

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References:

 

Alter, K. S. (2010). “Social enterprise typology”.

 

Anglada-Escudé, G.; Amado, P. J.; Barnes, J.; Berdiñas, Z. M.; Butler, R. P.; Coleman, G. A.  L.;   de la Cueva, I.; Dreizler, S.; Endl, M.; Giesers, B.; Jeffers, S. V.; Jenkins, J. S.; Jones, H. R. A.; Kiraga, M.; Kürster, M.; López-González, M. J.; Marvin, C. J.; Morales, N.; Morin, J.; Nelson, R. P.; Ortiz, J. L.; Ofir, A.; Paardekooper, S.-J.; Reiners, A.; Rodríguez, E.; Rodrίguez-López, C.; Sarmiento, L. F.; Strachan, J. P.; Tsapras, Y.; Tuomi, M.; Zechmeister, M. (2016). “A terrestrial planet candidate in a temperate orbit around Proxima Centauri” Nature.  536 (7617): 437–440.

 

Bulow, Jeremy (1986). “An Economic Theory of Planned Obsolescence“. The Quarterly Journal of Economics.

 

DTI (2002) “strategy for social enterprise”. London HM Treasury (p7)

 

Elkington John (1994). “Towards the Sustainable Corporation: Win-Win-Win Business Strategies for Sustainable Development,” California Management Review 36, no. 2 (1994): 90–100.

 

Frances N. (2008) book” “The end of charity; Time for social enterprise.”

 

International Institute for Sustainable Development (1992) book “business strategy for sustainable development leadership and accountability for the 90s.”

 

Leff. J & Warner. R, (2006) “Social inclusion of people with mental illness” Cambridge University Press

 

Mandiberg James M. (2016) “Social Enterprise in Mental Health: An Overview” Journal of Policy Practice

 

McCrehan, A. (2014). “Goodwill’s history”. From: http://www.goodwill.org/about-us/goodwills-history/

 

Porter Michael E. and Kramer Mark R. (2011) “Creating Shared Value” Harvard Business Review

 

Skloot, E. (1983). “Should not-for-profits go into business?” Harvard Business Review

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